Real rate was equal to the marginal product of capital
Course:- Business Economics
Reference No.:- EM13839561

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Business Economics

You need both equations and clearly labeled graphs (separate graphs for each question) to answer the following questions. Assume that b=1/2 and that initially the real interest rate is equal to the marginal product of capital at 3%. As well, assume that v=2 and that the inflation rate last period was 2%. Assume the natural rate of unemployment is 5.5%.

a. The Sequester is probably a bad idea. Use the IS-MP model we developed in class to explain what should happen to the economy if the government cuts spending by 1 percentage point of potential GDP.

b. How much can we expect this to increase the unemployment rate? (no need for a graph)

c. How much will this change inflation? What will the inflation rate be in the period of the cuts?

d. What was the nominal interest rate last period (before the cuts) if the real rate was equal to the marginal product of capital.

e. What happens to the real rate of interest this period (after the cuts) if the Federal Reserve does nothing to change the nominal rate. What will this do to the economy? Remember that the government has cut spending in question 2a.

f. What does the Federal Reserve have to change the nominal interest rate to in order to close the output gap?

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Business Economics) Materials
What are the most difficult aspects of the Coase Theorem in solving a problem like spread of a dangerous flu by those who are not vaccinated against it? Assume the vaccine is
Project managers must have a clear distinction between managing versus leading. Describe at least three characteristics that distinguish managing from leading within the sof
A car wash in a metropolitan area services a community of 50000 people. The car wash charges $14 per car wash. For every dollar increase in the price of a car wash the potenti
Use axiom of transitivity to prove that indifference curves cannot touch each other. Use axiom of non-satiation to prove that indifference curves will always be downward slopi
The method used to prepare the budget can also affect the amount of time it takes to complete the budget. For example, companies that use participative budgeting will likely t
1. What value is assigned to the lblNum control when the lbl.Num.Text=9925 instruction is processed by the computer? 2. Explain the method for providing keyboard access to a t
Suppose John has an income of $120 per period and faces prices Px=2 and Pz=3. His goal is to maximize his utility, described by the function U = 10x^0.5 * Z^0.5. Calculate the
The figure above represents Giuliani’s farm a profit-maximizing perfectly competitive firm with the price of its product been equal to $7. Explain your answers. How much is th